For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

All investing is subject to risk, including the possible loss of the money you invest.

I love watching my toddler learn. It’s truly rewarding (and often hilarious) to observe his determination when he’s solving a new problem. How do I put these batteries back in the TV remote? How can I get those animal crackers down from the third shelf in the pantry? Uh oh… How do I get back that app I just deleted from mom’s iPad®?

What I enjoy most is seeing how undaunted he is by new challenges and how patient he is when finding a solution to a “problem” takes time—and more than one try. As we grow up, it seems that we lose some of our patience. If we know that reaching a goal will take time, we might put it off.

As I’ve talked with friends with similar-aged children, it’s become clear to me that saving for college can seem like a daunting long-term goal—and consequently, it’s often something people put off or avoid completely.

Although it probably will take some time to reach your college savings goal, it’s definitely worth the effort. 529 college savings plans provide great tax benefits and can be used for a variety of higher-education costs. And they’re really pretty simple to figure out.

Myth: If we don’t use the money for college, we lose a significant portion of the principal.

Truth: There’s actually quite a bit of flexibility with 529s. If your child decides not to go to college or obtains a scholarship, the money can be transferred without penalty to a sibling or another eligible family member, or even to yourself if you decide to go back to school. And, if you do end up needing to use the money for other purposes, only the earnings portion of the account is subject to a 10% penalty and income tax. The amount you contributed less any withdrawals isn’t subject to penalty or income tax.

Myth: When I open a 529 account in a given state, my beneficiary must attend school in that state.

Truth: 529 college savings accounts can be used at eligible postsecondary institutions in any state and abroad. If your state’s specific program is a prepaid tuition account, you may want to see if it has in-state school requirements for full coverage of tuition and fees.

Myth: Having money in a 529 account hurts my child’s chances at receiving financial aid more than a bank account would.

Truth: All your liquid savings will likely be assessed as part of qualification for aid. Because 529 assets are considered parental assets, and not your beneficiary’s, they have a relatively minor impact: No more than 5.64% of your 529 savings (versus 20% for UGMA/UTMA accounts or other child-owned assets) is counted in aid calculations.

And, keep in mind that 43% of “financial aid” awarded to students is in the form of federal student loans, so having some savings can reduce the amount your child has to pay back (source: College Board Trends in Student Aid 2015).

Myth: It’s tricky to figure out which state plan to choose.

Truth: Investing in a 529 account doesn’t have to be complicated. Following a few simple guidelines, it’s really a matter of determining which plan suits your needs. First, consider the plan of the state where you live: Some states offer tax advantages for residents.

Next, take a look at overall fees and fund costs—the less you pay in fees, the more you save. Other relevant factors include investment options and minimum investment amounts. Many states allow you to open an account with as little as $25. Check out Vanguard’s interactive map tool to learn more.

Myth: Since my child is already a teenager, it’s not worth it to open a 529 account now.

Truth: Better late than never. Any amount saved is less you need to borrow to pay for school. Just keep in mind that as your child approaches college age, it’s important to consider the appropriate level of risk to take. Taking on too much risk as a way to compensate for less savings is potentially dangerous because your child will need the funds soon. Many states offer age-based options, which regularly readjust your asset allocation, reducing equities as the beneficiary nears college age. These options can help simplify your investment decision.

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.

Investment returns are not guaranteed, and you could lose money by investing in a 529 plan.

Charu Chander Gross

Charu Gross is head of Vanguard's Education Savings Group, responsible for providing 529 education savings offerings to state and retail clients. She joined Vanguard in 2005 and has worked in several roles spanning human resources, Vanguard Advice Services Group, and Vanguard Retail Services where she was head of Voyager Select®, overseeing 200 employees serving clients with assets ranging from $500,000 to $1 million. Charu earned a B.S. in economics from Penn State. She holds FINRA Series 6, 7, 24, 26, and 51 licenses.

Comments

Jim U. | July 19, 2016 11:17 pm

HOW MY KIDS GRADUATED W/O DEBT (part 2)

TRANSFER… (continued).. Airline tickets to fly back and forth 2 to 3 times each year eats up $, but adds no value to your education.

POST SCRIPTS: Both of my kids followed this outline for their BS degrees. Both spent 3 years @ the community college. Both transferred to the university with about 30 credit hrs more than normal. This had a side benefit @ the university when they registered for classes each quarter after they transferred. The registration computer program gave students with more credit hrs first priority to register (my kids immediately got to register with seniors). Both earned business degrees in finance. Both received no grants, no scholarships, NOTHING. Both graduated with NO DEBT. Both appreciated starting their work life without the debt man knocking @ their door. Later both earned MBA’s (My son got 100% of his paid by his employer. My daughter got 50% of hers paid by her employer). My son (oldest) was initially reluctant to buy into this plan because he was “brainwashed ” by his high school councilors into chasing after expensive colleges and their associate debt, which can become TOXIC after graduation. My son & I are saving for his kids using the Nevada (Vanguard) Plan. He utilizes a neat trick, by depositing the $ into the Oregon Plan (getting a tax benefit), THEN he uses the 1-time per year transfer privilege to transfer most of the $ into the Nevada Plan ( thru the back door) each year. THAT’s IT!

Jim U. | July 19, 2016 10:45 pm

HOW MY KIDS GRADUATED WITHOUT DEBT

CONTRIBUTE TO A SAVINGS PLAN: I had a separate account using no-load mutual funds. 529 plans did not exist in 1977. I had 2 accounts, 1 for each kid.

CONTRIBUTED REGULARLY TO THE PLAN: Once pregnant, start saving and stash it into a mayo jar. Do this and you can spread the cost of college over 1 more year. I contributed $ into the accounts every 2 wks for 23 years for each kid. To help me find $ to save, I “did without” in 3 areas. No cell-phones, no cable/satellite TV, and no new cars. I drove a 9-yr old van for 27 years. Put your child tax credit each year in here too. Other areas for “doing without: include; Starbucks, credit card interest, and of course no cigarettes or cannabis.

CUT COLLEGE EXPENSES IN THE FIRST 2 YRS: Send your kids to a local community college for the first 2 yrs. While you are @ it, enroll them in summer school right after high school, and the next summer too. This will give your kids the opportunity to either catch up or get ahead in their math, or writing, or ??. The first 2 summers are the easiest to find classes in. Tuition @ the community college costs a lot less $, compared to the university. Living @ home saves $. THEN

TRANSFER TO THE CLOSEST STATE UNIVERSITY: Local (best) because they can continue to live @ home, but they will need to commute. When my kids graduated, their degrees said “XYZ University”, not “ABC Community College”. Both my kids utilized “used” books.

Jim U. | June 16, 2016 12:34 pm

I have tried endlessly to inform people about saving for their children’s education. It seems like the only people interested are those whose kids are near age 18 (too late). Back in 1977 when my son was born there were no 529’s. I saved $ in a separate account dedicated to education. $ were saved every two weeks. In 1991 all my saving really paid off as the stock market took off, and I made a killing,including the education fund. Later, when my son was in his senior year, we started the FAFSA process. Nothing happened! FAFSA was a complete bust! A fake! Nothing! NADA! Afterwards, we were resolved to have my son attend the local Community College, and then transfer to the State University across town (he lived @ home and commuted each day). He received no grants, no scholarships. .NOTHING, ZIPPO, ZERO. All of his tuition, books, ..ect was paid for by the education fund. ZERO DEBT!!

Later my son got a job with Intel (financial analyst). My son rubs elbows with other analysts, and with one in particular. He attended Northwestern U. and was recruited by Intel (got a $5,000 signing bonus). My son got no signing bonus. When he asked my son about his bonus, my son said ZERO. Then my son asked him how much his debt was. He said his current debt was $80k. THEN my son deliver the upper-cut. My son tells him that his debt is also ZERO. The other fellow was crushed!

My recommendation: Save for your kids education. Things like this can happen to you.

Anil R. | May 19, 2016 10:25 am

My son who is 4 years old this year, he currently doesn’t have a SSN as he is on dependent VISA (H4) he has ITIN for tax filling. Eventually if all goes as god planned our family will get green card in 2-3 years’ time. My question here is can I open a 529 plan for my son with his ITIN as beneficiary and will I able to update his SSN in the account when gets one down the line. Is there any impact in doing so?

Anil,
The beneficiary can be a U.S. citizen or resident alien, with a valid U.S. permanent address that’s not a P.O. box; a Social Security number or taxpayer identification number; and be of any age, from newborn to adult. An ITIN is an acceptable identification number and may be updated to a Social Security number in the future.

In order to ensure you meet any additional requirements to establish a 529 plan account, we recommend you review the program description or plan disclosure documents for the 529 plan you wish you open.

James H. | May 12, 2016 2:20 pm

Hi James,
There are many factors in choosing a 529 college savings plan. Residents of New York do receive a state tax break on contributions to a NY529 plan, so that’s something to consider. Here’s a link that can help you choose the plan that’s right for you. If you have any questions, call 877-NYSAVES (877-697-2837).

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For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

All investing is subject to risk, including the possible loss of the money you invest.